The growth of the Internet, the proliferation of digital media and the advancement of communications infrastructure have fundamentally changed the way people work, shop, entertain and communicate. According to Gartner, in 2003, there were over 488 million Internet subscribers world-wide. Of these subscribers, approximately 257 million were accessing the Internet through dial-up connections at speeds of up to 56 Kbps. Dial-up users typically use their connections for email and low-bandwidth Internet access. Comparatively, approximately 86.5 million subscribers were using first generation broadband, such as DSL or cable modems, for faster downloading of data. It is believed that typical first generation broadband downstream speeds are one Mbps and upstream speeds are 256 Kbps, which limit users to sending and receiving emails with attachments and utilizing low-bandwidth Internet access and some multi-media applications. Today users are increasingly demanding access to advanced digital media, video and communications applications that require high speed rates for effective upstream and downstream transmission.

In an attempt to meet the growth in demand for Internet access and to supplement their legacy voice revenues, carriers have been deploying first generation broadband technologies in the form of DSL solutions over copper lines. DSL typically offers speeds averaging one Mbps downstream and 256 Kbps upstream, which are inadequate for providing the bandwidth necessary for advanced digital media, video and communications applications.

Accordingly, a number of carriers are deploying fiber-fast broadband solutions over their existing copper infrastructure. With speeds of 50 Mbps to 100 Mbps downstream and 30 Mbps to 50 Mbps upstream, fiber-fast broadband solutions bridge the bandwidth gap between fiber and copper while avoiding the costs and time of deploying fiber all the way to the premises. This enables carriers to quickly meet the needs of their users and increase their revenues through the delivery of advanced digital media, video and communications applications while minimizing costs and capital expenditures.

The Company has developed its integrated chipset solutions for the fiber-fast broadband market using its proprietary communications algorithms and protocols, unique digital signal processor architecture, advanced semiconductor design methodologies and mixed-signal circuit design techniques. Using its systems-level expertise, the Company also designs its semiconductor solutions that interface with higher-level networking layers for communications applications.

One of the key technology differentiations of the Company’s solutions is its integrated analog front-end. The analog front-end performs the high-precision analog-to-digital and digital-to-analog conversion and the various analog functions necessary to interface between the digital signal processor and the physical transmission medium. These integrated analog functional blocks include programmable analog transmit and receive filters, low-noise amplifiers, and a power-optimized line driver with synthesized impedance and hybrid cancellation.

The Company provides the first highly programmable architecture for the fiber-fast broadband industry that enables significant customization of reach, rate and spectrum allocation specifications. The Company’s software enables the programming of its digital signal processor as well as the configuration of other key functions. The Company also provides an interface, through its software, to an external processor for configuration and diagnostic testing.

The Company has designed high-performance, low power usage digital signal processors for high-speed applications that incorporate hardwired blocks as well as its proprietary software. The Company’s processing algorithms enable reliable transmission and recovery of signals at fiber-fast speeds over the existing telephone copper infrastructure even under noisy electrical conditions.

The Company developed the industry's first solution with the capability to support multiple network interfaces for fiber-fast broadband. The Company’s solutions support both asynchronous transfer modes, or ATM, and Internet protocol interfaces that allow a variety of different line card architectures.

Cost of revenue was $30.5 million for the nine months ended September 30, 2004, as compared to $15.4 million for the nine months ended September 30, 2003, an increase of $15.1 million, or 98.1%.

Research and development expenses remained relatively flat at $15.2 million and $15.0 million for the nine months ended September 30, 2004 and 2003, respectively.

Net interest income was $68,000 in the nine months ended September 30, 2004, as compared to net interest income of $51,000 in the nine months ended September 30, 2003, or an increase of $17,000, or 33.3%.

Net loss was $8.0 million in the nine months ended September 30, 2004, as compared to a net loss of $22.9 million in the nine months ended September 30, 2003, a decrease of $14.9 million, or 65.1%.